Question

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

	2018			2019			2020
Cost incurred during the year	$	2,100,000		$	3,150,000		$	2,475,000
Estimated costs to complete as of year-end		5,400,000			2,250,000			0
Billings during the year		2,150,000			3,100,000			4,750,000
Cash collections during the year		1,875,000			3,100,000			5,025,000

Westgate recognizes revenue over time according to percentage of completion.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).
3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.
4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

	2018			2019			2020
Cost incurred during the year	$	2,100,000		$	3,875,000		$	3,275,000
Estimated costs to complete as of year-end		5,400,000			3,175,000			0

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

	2018			2019			2020
Cost incurred during the year	$	2,100,000		$	3,875,000		$	4,125,000
Estimated costs to complete as of year-end		5,400,000			4,250,000			0

Please help, i am so confused.....

Answer 1

As per policy only first four questions will be answered

Part 1

	2018	2019	2020
Revenue recognized	2800000	4200000	3000000
Gross profit (loss)	700000	1050000	525000

Revenue recognized

2018 = costs incurred / total costs * contract price = 2100000/(2100000+5400000)*10000000 = 2800000

2019 = 3150000/(3150000+2250000)*(10000000 - 2800000) = 4200000

2020= 10000000-2800000 - 4200000 = 3000000

Gross profit = revenue - expenses

2018 = 2800000-2100000 = 700000

2019 = 4200000-3150000 = 1050000

2020 = 3000000-2475000 = 525000

Part 2A

Date	general journal	debit	credit
2018	construction in progress	2100000
	Various accounts		2100000
2018	accounts receivable	2150000
	Bills on construction contract		2150000
2018	cash	1875000
	Accounts receivable		1875000
2018	construction in progress	700000
	Cost of construction	2100000
	Revenue from long-term contracts		2800000

Part 2 B

Date	general journal	debit	credit
2019	construction in progress	3150000
	Various accounts		3150000
2019	accounts receivable	3100000
	Bills on construction contract		3100000
2019	cash	3100000
	Accounts receivable		3100000
2019	construction in progress	1050000
	Cost of construction	3150000
	Revenue from long-term contract		4200000

Part 2 C

Date	general journal	debit	credit
2020	construction in progress	2475000
	Various accounts		2475000
2020	Accounts receivable	4750000
	Bills on construction contract		4750000
2020	Cash	5025000
	Accounts receivable		5025000
2020	Construction in progress	525000
	Cost of construction	2475000
	Revenue from long-term contract		3000000